While the focus of the Reserve Bank's current policy of reducing the OCR is on borrowers, the flip side is that investors are also affected.
One of the key determinants of term deposit rates is the Official Cash Rate (OCR), which is the principal monetary policy tool used by the Reserve Bank to maintain price stability.
Reducing the OCR has a stimulatory affect on the economy, as borrowers take advantage of lower rates to spend
more. Eventually the increased demand for goods and services leads to higher inflation.
While the focus of the Reserve Bank's current policy of reducing the OCR is on borrowers, the flip side is that investors are also affected.
Of course the good news is that while interest rates are low, inflation is at a historical low of less than 1 per cent.
Looking ahead, it is clear the Reserve Bank is intent on keeping interest rates low, resulting in a stimulus to the economy that will see inflation increasing over the next two years or so to about 2 per cent.
